Gold, Silver Extend Losses as Equity Rally Stalls: Markets Wrap

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(Bloomberg) — Gold and silver extended their plunge from record highs, while Asian stocks slid after a rally on Wall Street showed signs of fatigue.

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Gold fell as much as 2.9% before paring losses, after suffering its biggest intraday decline in more than a dozen years on Tuesday. Silver also slid, following its 7.1% drop in the prior session.

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The sudden declines in precious metals underscored a wave of profit taking, following sharp gains this year that were fueled by central banks-led buying and worries about fiscal woes in developed countries. The slumps also came after technical indicators showed the recent scorching rallies were likely overstretched.

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“Profit taking moves started to snowball,” said Tim Waterer, chief market analyst at KCM Trade. The declines reflect “high temptation for traders to take profit at price levels which have never been seen before in the gold market,” he said.

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Elsewhere, Asian stocks dropped after the S&P 500 Index closed little changed Tuesday, with gold’s decline weighing on Australian miners. Hong Kong and mainland Chinese shares also slid in early trade. Treasuries and the dollar were steady.

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Despite recent de-risking amid concerns over trade and credit, stock exposure among global macro hedge funds and long-only strategies remains at the highest in over a year, according to Barclays Plc.

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“Our near-term technical outlook is for equities to consolidate/pull back over the next few weeks,” said Craig Johnson at Piper Sandler. “We view pullbacks as healthy and necessary.”

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While the US government shutdown has caused an economic data vacuum, drawdowns in equities have been short-lived as investors see them as opportunities to add risk to their portfolios. The closure has also left commodity traders without one of their most valuable tools: a weekly report from the Commodity Futures Trading Commission that indicates how hedge funds and other money managers are positioned in US gold and silver futures. 

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“We assume such positioning had built to substantial levels and ultimately triggered the selloff,” ANZ Group Holdings Ltd. analysts Brian Martin and Daniel Hynes said in a note. “Despite this pullback, we still see long-term drivers in place and providing support to prices.”

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US Shutdown

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The ongoing US government shutdown is on the cusp of becoming the second-longest on record. The shutdown has delayed the publication of official data, including September’s inflation figures which the government plans to release on Friday.

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Oil inched higher after an industry report signaled US crude inventories dropped for the first time in four weeks, while President Donald Trump reiterated India would trim its purchases of Russian energy.

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A confluence of factors dragged down precious metals, including positive trade talks between China and the US, a stronger dollar, overstretched technicals, and uncertainty on investor positioning due to the US government shutdown and the end of a seasonal buying spree in India.

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Gold’s rally in recent months has been nothing short of extraordinary, fueled by falling yields, persistent central bank buying, and expectations of further monetary easing, according to Fawad Razaqzada at City Index and Forex.com.